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Sunday, January 21, 2018

Timbit

Tim Horton's, long a Canadian cultural idol (I have the word “icon” in this context. It is blasphemous), is now being crucified.

This is something new in Canada. We used to be kinder and more humane to our idols. It was something I liked about Canada.

The issue is that some Horton's franchisees, faced with a big legislated rise in the minimum wage, are financing it by reducing hours and benefits.

But what else can they do? Do people really think that money comes from thin air? If businesses are required by law to pay employees more, that money must come from one of four sources:

Hire fewer workers (or reduce hours and benefits).

Raise prices.

Reduce profits.

Hire fewer workers or reduce hours. This is the safest and least radical approach, and of course what Tim Horton's franchisees have chosen to do. And there is this big complaint about it.

Raise prices. Tim Horton's franchisees do not have this option. Prices are set by their franchise agreement. But even if they could, this is not a workable solution in many cases, and probably not in this one. You might be prepared to pay more for a cup of coffee. Fine for you, and you are free to do so. Leave a nice tip. But what about the poor? Poor people quite possibly cannot sustain the increased cost. Tim Horton's falls into the category of cheap luxuries: a cup of coffee, a donut, a little time relaxing with friends. In such a market, a slight change in price is devastating.

Result: no coffee or donuts for the poor. Not to mention that the franchisee loses everything, and the current employees are out of their jobs.

Reduce profits. No doubt this is what the protesters want franchisees to do instead. But there are just as many problems with this approach. To begin with, not all companies are making huge profits. A certain percentage regularly go bankrupt—quite a high percentage in the food and beverage field. Some studies say eight out of ten fail within their first year. That is a pretty good indication that margins are slim. Raise costs without raising revenue, and some further percentage are going to go bankrupt.

Ah, you say, but Tim Horton's at least is too big and too established to fail. Right. Like Sears. Like K-Mart. Like Eaton's. When was the last time you ate in a Howard Johnson's? Or at a Woolworth's lunch counter? Where margins are tight, things can happen blindingly fast.

Meaning fewer jobs and fewer services—the same effect as option one or option two above. In addition, reducing profits of course means reducing income of investors. Not applicable for many Horton's franchisees, which are probably sole proprietorships. Here, it is only some poor slob's life savings at risk. But for most large corporations trading on the markets, most stock is actually held by retirement funds of one sort or another. So you are not taking the money away from imaginary fat capitalists. You are taking the money away from pensioners.

Looking at these three options, the option chosen by the franchisees seems plainly the best one now available for all concerned. But better, clearly better, would be to not raise the minimum wage. If you do not like this result, blame the politicians.

“Minimum wage is not a living wage,” some argue, so it should be raised despite market forces. Probably right that it is not a decent wage for anyone who is a sole breadwinner. But those who make this argument overlook the fact that few households in Canada are actually sole-breadwinner households. For a kid still living with his parents, or for a couple's second income, or for a retiree with a slender pension, the pay at minimum wage can be vital. The simple proof of this is that people take the jobs. They would not if they did not find the money worth the work. With minimum wage laws, some people who need the money cannot get it. These will be poor people.

Consider this most common scenario: if you are uneducated, just out of high school, or trying to finance college or university, what job can you get with no experience? In what job can you realistically generate more income for your employer than you are costing him in wages?

In order to get young feet in doors, we have traditionally had apprenticeships and internships, often unpaid.

All very well for the wealthy; but then, the wealthy do not need this. They can afford to go to college and university and pay to get the skills for a job. What about the poor? They may well need to be making at least some money now. Low-paying jobs are what make this possible.

Minimum wage laws limit this opportunity. And poverty persists for another generation. And another. And another. And another.